Are oligarchic tensions set loose in Ukraine?

On 24 March the Ukrainian President Petro Poroshenko dismissed the governor of the Dnipropetrovsk region Ihor Kolomoisky. This action immediately sparked discussions and questions about what is the actual motivation of this choice and what its consequences may be for the strained stability of Ukraine.

Actually, dismissing or appointing regional governors is a prerogative to the Ukrainian presidential institution and Poroshenko’s decision would not have raised many eyebrows if the dismissed person was any other but exactly Ihor Kolomoisky.

Who is Ihor Kolomoisky?

Kolomoisky is one of the richest oligarchs in Ukraine whose business empire dates from the chaotic 90s and has been growing in power throughout the Kuchma, Yushenko, and Yanukovich era of Ukrainian politics. Today Kolomoisky’s wealth is significant and his assets span several sectors such as aviation, energy, metallurgy, finance and media. He was appointed governor of Dnipropetrovsk at the wake of the Euromaidan unrest. The Dnipropetrovsk region is one of the richest in Ukraine being position between the industrial centers of the Donbas to the east, capital Kiev to the north and the port regions of Mariupol and Odessa to the south and south-west. Most of Kolomoisky’s business empire is headquartered in and around Dnipropetrovsk so his desire to assume the governor’s post was not surprising. This way he received both political and economic power in the rich province.

When the separatist crisis ignited Kolomoisky took a firm pro-Ukrainian position as most of his business directly depends on Kiev’s independence from Moscow. The oligarch armed with his private funds four volunteer battalions (Azov, Dnipro 1, Dnipro 2, Donbas) which took a significant role in the fights around Donetsk and Lugansk. De facto Kolomoisky is controlling a private militia numbering about 3500 men.

It was exactly the unauthorized use of his militia that led to the formal reason of his dismissal from the governor’s post. Kolomoisky ordered a number of his armed men to surround the offices of his companies “Ukrtransnafta” and “Ukrnafta” in Kiev and block out the central government officials’ access. This rough measure was a retaliation to a law which was passed on 19 March by the Rada limiting his control over Ukraine’s largest oil company and pipeline operator.

What is actually happening?

There is no straight answer to this question as it is always very difficult to decipher the actions of the Ukrainian oligarchy due to the complete lack of transparency and high level of collusion between private and political interests.

For sure, Kolomoisky’s firm position against the separatists from Donetsk and Lugansk made him a useful and desired ally for Poroshenko and the government in Kiev. His battalions took an active part in the operations and saved some financial and military headaches for the central authorities as the regular military is both short of cash and operationally inadequate. But it is possible that the situation may be changing now as the frontline is considerably calmer now since the last Minsk accords.

One possible explanation of the recent developments could be that the government in Kiev is coming under international pressure from its new creditors to reclaim some of the country’s wealth. It is not difficult to imagine that it makes little sense to ask for constant financial injections from the West (IMF particularly) while most of Ukraine’s wealth is untapped in the hand of a limited circle of oligarchs. Most of the county’s wealth is split among not more than 10-12 people. This is an extreme level of oligarchic corruption which is not observable even in Russia. In this line of thought, the country’s creditors may be pushing Poroshenko to take hold of his country’s wealth with the cold financial calculation of securing their own loans.

A second version of the events could be linked simply to an “oligarchic war”. As mentioned before, the oligarchic network is a part of modern Ukraine since its independence. In this sense, struggles between the oligarchs are not a new event. It has happened before, it is happening, and will continue to happen unless serious socio-political reforms are undertaken. We should therefore not ignore the fact that the president Petro Poroshenko is himself a very influential oligarchic figure. Before stepping in as the head of state, Poroshenko gave up part of his businesses to circles closer to him and retained informal control. His empire is also based in the financial sector and as such he could be a direct competitor to Kolomoisky. Certainly, using the state apparatus to settle business interests is not new to Ukraine has been done under each of the previous presidential administrations. The only novelty here is that Poroshenko is the first major ex-oligarch that sits on the presidential seat unlike all of his predecessors. Therefore, we should not be surprised if the explanation of the fallout is very trivial – aggressive asset grab sanctioned by the official law.

Thirdly, may be the government in Kiev sees it as imperative to centralize its control over the military capabilities of Ukraine. Allowing a private paramilitary force freely roaming around the country and obeying a private individual is from any point of view an insane idea when it comes to establishing solid statehood and rule of law. We can imagine easily that both Kiev’s supporters in the west and its adversaries in the east see these paramilitary organizations as a nuisance. For the western democracies it is becoming extensively difficult to save face and explain to critics how Ukraine is moving towards democracy while its army is not the sovereign military force within its territory. Some voices have also claimed that there may have been a secret point agreed upon between Poroshenko and Putin in Minsk for dismissing all militias and particularly the ultra-nationalist Right Sector.

Why this is all happening now?

The situation of Ukraine is far from stable today. However, compared to the previous months the frontline is reasonably calmer. Also, it seems that the Kremlin’s attention may be distracted by domestic events like Nemtsov’s murder, Putin’s “disappearance”, the preparations for a grandiose 70 year anniversary of the end of WWII, and the West’s promise for more sanctions. So, this could be seen by the Poroshenko team as an ideal window of opportunity to turn to domestic affairs. Also, the West may have required some more serious steps and reform actions from Kiev before receiving the next financial aid package.

What is to be expected?

We can be certain that whatever is Kiev’s motivations it is unlikely that Kolomoisky will go down without any resistance. It may be a dangerous gamble on behalf of Poroshenko to alienate Kolomoisky fully. The conflict in Ukraine is far from over and the Ukrainian military is still far from being an effective force. Dnipropetrovsk proximity makes it a strategic location in case fighting restarts. Kolomoisky can mobilize his political support base in the Rada and try to destabilize the government. Worse even, he may decide to defect and lean towards a friendlier tone with Russia and help nursing stronger separatists. It all depends on how far and how hard Kiev intends to press Kolomoisky to the “wall”. Certainly, many serious challenges are still to face Ukraine with the onset of spring.